Words: Ashley Rigg
Published: 26th November 2009
Developer default fears spook markets
The government-owned investment company behind Dubai's rapid development drive has asked its creditors for a six-month delay on repaying its debts, sparking a huge sell off in shares and bonds issued by real estate firms in the UAE.
Dubai World, which owns Nakheel, the largest developer in the emirate has total debts of $59bn. The company was due to repay $3.5bn of its debts next month but asked creditors yesterday if it can postpone the payment until May next year.
A technical default?
Global credit rating agency Standard & Poor's, which rules on a company's or government's ability to repay its debts, said the announcement "may be considered a [debt] default". As a result, it said it was downgrading its ratings on several Dubai government-related financial entities.
Shocking
"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations," analyst Shakeel Sarwar, of SICO Investment Bank told the BBC.
Abu Dhabi to the rescue?
Property prices in Dubai have suffered peak-to-trough declines of nearly 50% since peaking in 2008 and many projects have been delayed or cancelled completely. Signs of Nakheel’s problems were evident in August when it announced an innovative
credit note trading system to boost cash flow.
There is speculation in many quarters that Dubai will be forced to turn to the more fiscally conservative and economically robust Abu Dhabi for help paying its debts. Abu Dhabi’s property market is generally considered to be in better health than Dubai’s. The emirate recently announced it was
building another 17,000 homes to cater for local demand.
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